South Korea has introduced two regulatory changes affecting organisations with employees or cross-border payment obligations. From 1 January 2026, new obligations apply when applying reduced withholding tax rates for non-residents, and interest on delayed wage payments now applies to all employees. Employers should review payroll, tax, and compliance processes to ensure readiness for both changes. 

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Mandatory Submission for Non-Resident Withholding Tax 

Effective 1 January 2026, withholding agents paying domestic-source income to non-residents under a tax treaty must submit applications and supporting documents to the competent tax office. 

Under the previous rules, withholding agents were required only to retain documentation, including: 

  • Application for reduced tax rates under a tax treaty
  • Report on foreign investment schemes
  • Retention period of five years from the day following the withholding tax payment deadline (the 10th day of the month following payment) 

Under the new requirements: 

  • Submission of applications and supporting documents to the competent tax office is mandatory
  • The rules apply to income paid on or after 1 January 2026
  • The submission deadline is the end of February of the year following the payment year, aligning with the withholding tax payment statement 

Organisations should ensure applications and supporting documents are obtained in advance and review internal payroll and compliance processes to meet the new submission deadlines. 

Relevant legislation: Income Tax Act §156-6; Income Tax Enforcement Decree §207-8(8); Corporate Tax Act §98-6; Corporate Tax Enforcement Decree §138-7(8) 

Interest on Delayed Wage Payments Now Applies to All Employees 

From 23 October 2025, Article 37 of the Labour Standards Act was amended to extend interest on delayed wage payments to all employees. Previously, interest applied only to retired employees. 

Under the amended provisions: 

  • Employers must pay wages at least once per month on a fixed, predetermined payday (Article 43)
  • Interest accrues from the day following the missed payday until payment is made (Article 37)
  • The interest rate is prescribed by Presidential Decree and is currently set at 20% per annum, subject to a statutory cap of 40% per year
  • Interest applies to wages under Article 36, including final wages and certain lump-sum benefits under the Act on the Guarantee of Employees’ Retirement Benefits, as well as regular wages under Article 43
  • Exceptions apply where payment is delayed due to natural disasters, calamities, or other grounds prescribed by Presidential Decree

Employers should review payroll calendars, employment contracts, and the treatment of bonuses and allowances to mitigate the risk of interest liabilities. 

South Korea – Global Insights 

For detailed guidance on payroll, employment law, and compliance in South Korea, visit our South Korea Global Insights on the activpayroll website

Next Steps 

To understand how these changes may impact payroll, mobility, or HR policies in South Korea, complete our Contact Us form, and a member of our expert team will assist with your queries. 

 

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